Decline

As of monday, November 5 2007, two Wall Street powerhouses have dismissed their CEOs for allowing the firms (Citi Group & Merril L.) to become over exposed to sub-prime loans. They were mixing high risk and medium risk baskets of home loans, and offering these securities to the markets. As of this date, Merril Lynch is reporting 8 billion in known losses, with more paper they're sitting on yet to be evaluated. Citi Group, this weekend reported at least 11 billion in losses, with similar future uncertainties. These to firms are but the opening rounds in this mess.

Added to this is an annual U.S. trade deficit of (Merchandise trade deficit 2007) approx. 3/4 trillion. In addition, U.S. government debt (authorized debt limit ceiling) is now north of 9 trillion.

Here's the point: We're about to get slammed by extremely high interest rates, both because foreign investment has no interest in dollar denominated investments (reference the collapsing dollar against foreign currencies), and because inflation will have to be addressed by the Fed with in the near future due to "easy money" that's been sloshing around for the last 10 to 20 years. So yes, it is indeed possible we may see a reversion to pre 1980s home prices. - Tue Nov 6 2007, 11:55